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IU economists predict more of the same in 2013

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The economy in 2013 is likely to mirror the slow-growing one of this year, economists from Indiana University’s Kelley School of Business predicted Thursday morning at their annual forecast.

The panel predicted the national economy will expand about 2.5 percent next year, which is better than the 1.7-percent growth so far this year, due in part to increased consumer spending and improvements in the housing market. But the panel also said a number of factors could make things worse.

Even the best scenario won’t be enough to make much of a dent in the unemployment rate, which stood at 7.8 percent in November. The economists think the jobless rate will remain above 7 percent next year with inflation remaining close to 2 percent.

“We expect that 2013 will be generally similar to 2012: unacceptable slow growth, without much progress in the labor market,” Bill Witte, associate professor emeritus of economics at IU, said in a prepared statement.

Indiana, however, is faring better in terms of employment, said Jerry Conover, director of the Indiana Business Research Center. So far this year, payroll employment is averaging more than 52,000 above last year’s levels, he said.

“This is a more appealing picture than we painted last year for Indiana,” Conover said in a prepared statement.

At the current growth rate, however, Indiana still is about two years away from its pre-recession employment level, he said.

Real personal incomes in Indiana will rise less than 2 percent in 2013, with per-capita incomes rising about $1,500. The state's overall economic output will grow about 2.3 percent, comparable to the national rate, the economists forecast.

And like a year ago, a considerable list of issues could upset the economists’ expectations, especially what they refer to as the “fiscal cliff,” a potential economic growth-killing combination of higher taxes and government spending cuts. Such a situation would likely send the economy back into recession, they said.

Without congressional action, a long list of tax increases and spending reductions will go into effect Jan. 2, Witte said.

“In fact, the uncertainty about the situation is already having an impact on business decisions,” he said, pointing to a decline in plant and equipment investments in the third quarter. “The tepid pace of hiring probably also reflects this ambiguity.”

Other highlights from the forecast include:

— Prices of existing homes will rise and new housing construction will increase;

— Mortgage rates will continue at historic lows, as lenders finally begin to loosen reins on credit;

— Energy prices will remain relatively flat in 2013, with oil prices averaging at or below $90 per barrel;

— Stock market values should climb slowly next year, but well below long-term growth rates.



 

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  • Historical Comparison
    I take the position that we experienced a Depression starting in 2007, which reached epic status in September 2008 and continued through 2009. In reviewing the recovery efforts following the Great Depression of the 30's, I believe economists will find the need for Federal Government involvement in any large scale banking recovery. Historically, most companies sent people home during the Great Depression. Banks that failed due to poor internal management, were not bailed out by the Federal Government back then. Comparing year-over-year recovery efforts by looking at the previous year is nothing more than historical reporting with guesswork applied going forward. The view that the glass is half-empty, while projecting the continued increases on Wall Street, suggests that the Federal Bailout of the Banking System did alter the impact of the Depression of 2008, at least on Wall Street. The housing market will not fully recover until banks recognize that home loans are needed to spur the growth of the Housing Market which contributed to the year-over-year growth of the American Economy between 2002 and 2007. The fact that banks lost focus when it came to validating the capabilities of borrowers to pay their mortgage bill indicates poor management, not the ultimate failures when a predicted recession contributed to the bubble burst associated with the home loan market. Without the Bailout for Wall Street, Goldman Sachs would not exist today. Having an ex-Goldman Sachs CEO, Hank Paulson, serving as Secretary of the Treasury contributed immensely to the year-over-year growth on Wall Street between 2009 and Q-3 2012, while Main Street America continued to suffer. I am guessing that success factors that trace their roots to having friends in high places following a financial crash goes well beyond economic predictions, since it does not appear the Bailout of Wall Street was factored into most current economic reports.

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